Empirical and analytical analysis of nonlinear pricing strategies. Essay I: Product bundling under three -part tariffs. Essay II: Optimal three -part tariff pricing

This dissertation studies a firm's optimal nonlinear pricing strategies in the wireless industry. There are four chapters in this dissertation. The first chapter gives an introduction about this dissertation. One strategy used by firms in industries such as wireless is to bundle several services into a menu of service plan and offer the plan under a three-part tariff pricing. To explore the profit impact of these service plans I need to understand consumer choices. To achieve this goal, in the second chapter I develop a structural model of consumer' choice of service plans and usage decisions. I find consumer preferences for the two services are positively correlated. The current service plans are not optimal, perhaps due to incorrect customer segmentation by the firm. Pricing experiments based on estimated consumer preferences suggest that the firm should offer one plan targeting heavy users and another plan targeting light users, as either a replacement for or in addition to current plans.;In the third chapter, I analytically examine the optimal three-part tariff pricing under different marketing environments when a firm bundles multiple services under three-part tariffs. I develop a model to understand (1) the optimal three-part tariff pricing structure when the firm offers nondiscriminatory tariffs or discriminatory tariffs; (2) the effect of consumer demand uncertainty on the optimal pricing structure; (3) and the conditions under which product bundling further increases profit for firms under three-part tariffs. I find that the firm makes the highest profit when the marginal price and free usage are set to make the low type consumers' usage exactly equal to the free usage. Under demand uncertainty the optimal pricing is achieved when usage by low type consumers will exceed the free usage under a positive demand shock, and exactly equals the free usage under a negative demand shock. Moreover, the firm will make higher profit when demand uncertainty exists. Bundling will further enhance the profit impact from three-part tariffs when consumers' preferences for multiple products are ranked differently. In the last chapter, I summarize this research and discuss the future research directions.